In 2012 – the last year for which records are available – the combined global production of ethanol and biodiesel fell for the first time since 2000, according to a report from U.S.-based sustainable development group Worldwatch Institute.

Although biofuel production only dropped by a small amount – down 0.4 percent from 2011 totals, the overall fall disguises shifting trends in production; global ethanol production declined slightly for the second year in a row, to 83.1 billion litres, while biodiesel output rose fractionally, from 22.4 billion litres in 2011 to 22.5 billion in 2012. The geographic centres of production also shifted slightly.

Biodiesel now accounts for over 20 percent of global biofuel production, according to Worldwatch's Tom Prugh. Biofuels, as defined by Worldwatch, are energy derived from biomass (plant and animal matter), which can range from manually gathered fuelwood and animal dung to industrially processed ethanol and biodiesel. Biomass can be used directly for heat, turned into biogas to produce electricity, or processed into liquids for use as transport fuel.

Major producers worldwide

The top five ethanol producers in 2012 were the United States, Brazil, China, Canada, and France. But the United States and Brazil accounted for 87 percent (61 percent and 26 percent, respectively) of the global total.

U.S. ethanol production totalled 50.4 billion litres, down by about 4 percent from 2011; U.S. production depends mainly on maize as a feedstock, and prices rose in 2012 due to the severe summer drought in the Midwest. As a result, by autumn 2012 the United States briefly became a net importer of ethanol after nearly three uninterrupted years of net exports.

Brazil's production rose 3 percent to 21.6 billion litres, partly because of a drop in sugar prices. The other top producers account for far smaller volumes; China's output, for instance, totalled 2.1 billion litres in 2012, while The EU as a whole produced 4.6 billion litres of fuel ethanol in 2012.

The United States also led in biodiesel production, with 3.6 billion litres, while Argentina took second place with 2.8 billion litres, and Germany and Brazil had roughly the same output at 2.7 billion litres apiece. China's biodiesel production, at only 200 million litres in 2012, lags far behind its output of fuel ethanol.

Several European nations produce biodiesel, and the EU as a whole still accounted for 41 percent of global biodiesel output despite a decline of 7 percent in 2012. Worldwide, biodiesel production grew at an average annual rate of 17 percent from 2007 to 2012, although the rate of growth slowed considerably.

Global investment in biofuels fell by about 40 percent in 2012, compared to 2011 levels. Biofuels investment within the Group of Twenty (G-20) nations has declined every year since 2007.

Biofuel demand is strongly driven by blending mandates and supported by subsidies. Seventy-six states, provinces, or countries had such mandates on the books in 2012, up from 72 the previous year.

Global subsidies for liquid biofuels were estimated in 2012 to be well over US$20 billion (£11.9bn). Mandates or targets have been established in 13 countries in the Americas, 12 in the Asia-Pacific region, and 8 in Africa. In Europe, the 28 EU states are subject to a Renewable Energy Directive (RED) that demanded a proportion of 5.75 percent biofuel content in transportation fuels in 2012.

The United States and China have established – and Brazil has already achieved – targets of between 15 and 20 percent no later than 2022; India has also mandated 20 percent ethanol by 2017.

The EU's RED came under strong challenge in 2012 as a result of concerns over the effect that biofuel feedstock cultivation is having on food prices and changes in land use. In response to this, the European Commission has proposed limiting conventional biofuels (those derived from food crops) to a 5 percent share of all transport fuels, though other EU legislators are pushing for a higher proportion.

Industry has been critical of EU measures to limit production of 'first generation' biofuels and, supported by sympathetic leaders from member states, has pushed for ongoing support whilst the EU executive attempts to incentivise exploration of new biofuels that can be created without competing with food production and impacting – directly or indirectly – on the environment.